I wrote: Actually, deflation increases the value of cash.You wrote: Not if you have debt. When I said "cash," I meant actual cash, as in a positive net worth. No debt! If you have cash, deflation is good. Cash will buy more. True, debt becomes more onerous, with deflation...but debt is not cash, as anyone with a mailbox full of bills can tell you.It may be true that if you're sitting on a mountain of cash (not stocks, not bonds, not gold, but actual dollar bills) you'd benefit from deflationary policies. But, in point of fact, no-one actually sits on cash.No one?? No one?? In point of fact, I am sitting on a mountain of I-Bonds, T-Bills, CDs and money market funds...which, as far as I am concerned, are equivalent to cash (except they pay interest). No debt. No mortgage, auto loans, credit cards...no debt.Therefore, I am better prepared for deflation than most people, although I believe that inflation is the likelier scenario.<Does the phrase "run on the bank" mean anything to you?>Does the phrase "FDIC" mean anything to you? It's the reason I never keep more than $100,000 in any single bank.The value changes if you're also losing the rest of your investments due to inflation and can't service your debt. No debt. The result of 25 years of LBYM.Deflation destroys wealth by removing investment capital that should have been paying off existing debts. In my opinion, investment capital should be invested in productive, profitable endeavors, not in paying off existing debts. Existing debts should be paid off by cash flow...and should be avoided, if cash flow will not cover them. Deflation is bad for the economy, it's true. That's why the Fed will inflate, to avoid it.<Can you imagine having $13 Trillion outstanding in treasuries and reducing the debt supply as well? Sorry, but I stand by my original statement. Deflation destroys wealth.>I can't imagine the debt being reduced. I think it will grow, dramatically. I think the government will increase the money supply, to pay for the growing debt. I believe that this will increase inflation, which will destroy wealth.Not to sound stubborn ;-), but deflation doesn't destroy wealth, if one's wealth is in cash...in fact, cash will buy more, in deflation. Just ask Mish :-).Deflation will destroy debtors, because they will have to pay their debts in more-valuable dollars. Inflation destroys savers, because it destroys the value of our dollars.Wendy
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